A service provider or a consulting company may provide a client or a customer with cost estimates used for planning the design or production budget of a business activity. Since important decisions may hinge on analysis supported by such estimates, it is important to ensure that the estimates are as accurate as possible.
The accuracy of a cost estimate depends on the model used to represent the underlying situation. Even when the accuracy of the model itself is not in question, however, the accuracy of the resulting estimate is still dependent upon the choice of input parameter values. For example, a cost estimate for an IT installation at a customer site may include the cost of equipment, the cost of real estate, the cost of operation and maintenance, and the cost of labor.
Often, some of the costs are known by the client from past experience, and some are not. The usual solution is then for the supplier to send a consultant on-site to collect and compute the unknown or missing information. This solution is costly for the client and the supplier.
Programs exist today for computing cost estimates for industry equipment and processes. In the IT industry, one such tool is the Total Cost Of Ownership Snapshot of COMPAQ, which can be downloaded at the Internet address ‘compaq.com/tco/snapshottool.html’. Another such tool is the NetApps TCO tool of Network Appliance at the Internet address ‘netapp.com/tco/’. Yet another example is the EMC Effect Value Justification Tool sold by EMC company at ‘emc.com/tco/’.
Such programs often have graphical user interfaces for interactively capturing parameter values entered on input screens. When a customer does not know a value needed as an input, the program uses a default value, which may be an average value known to industry experts.
The results obtained when using default values are not nearly as accurate as the results obtained when using input information gathered by consultants, however, as an industry-average value may not apply to the customer's particular situation. On the other hand, using default values is significantly less expensive than sending consultants. Consequently, there is a need to preserve the economic advantage offered by cost estimation programs that use default values, but also to provide the accuracy that results when consultants gather missing input information.